Finance Minister Nirmala Sitharaman presented her second Union Budget on 1 February 2020 in Parliament. Though the number of measures and schemes announced in the Budget is expected to act as investment triggers in the short and long terms, the timely implementation of these schemes is the key to the early revival of the economy. With private investment yet to show a clear sign of revival, the government has to continue to drive the capex cycle for some time to come. Keeping this in mind, the Finance Minister allowed the fiscal deficit to slip from 3.3 percent to 3.8 percent in RE 2019-20 and to 3.5 percent in 2020-21.
The total expenditure has been pegged at Rs 30.42 lakh crore in the Union Budget for 2020-21 and the capital expenditure of the government is pegged to increase by 21.7 percent.
The new schemes and budgetary allocations done sector-wise are listed below.
Agriculture and Rural Economy
To revive rural demand, on which the revival of Indian economy is largely dependent, the Union Budget has allocated a total sum of Rs 2.83 lakh crore for agriculture and allied activities, irrigation and rural development. Of this, Agriculture, Irrigation & allied activities will get Rs 1.60 lakh crore and for Rural development & Panchayati Raj, Rs 1.23 lakh crore.
To help farmers in storing and transporting their produces, the government has proposed to map and geo-tag agri-warehousing, cold storage, reefer van facilities by NABARD. Further, for creating new warehousing capacities, in line with the Warehouse Development and Regulatory Authority (WDRA) norms, Viability Gap Funding will be provided by the government for setting up warehouses at taluka level under the PPP mode.
To build a seamless national cold supply chain for perishables, inclusive of milk, meat and fish, the Indian Railways will set up “Kisan Rail” – through the PPP route. Similarly, Krishi Udaan will be launched by the Ministry of Civil Aviation on international and national routes to facilitate exports and faster movement of agri products.
Reduction in tax from 30 percent to 22 percent for co-operative societies is expected to boost investment in the food processing and dairy sectors.
The government also proposes to take up developmental schemes at 100 water- stressed districts in India. It also aims to provide standalone solar pumps to 20 lakh farmers and solar power, grid connected pumps to 15 lakh farmers.
The government also plans to increase marine (fish) production to around 200 lakh tpa by 2022-23.
Health & Education
The Budget has provided Rs 69,000 crore for health, Rs 99,300 crore for education and Rs 3,000 for skill development.
The government proposes to set up Viability Gap funding window for setting up hospitals in the PPP mode in Tier-2 and Tier-3 cities. The total allocation for Swachh Bharat Mission is Rs 13,800 crore (+nine percent) in 2020-21.
Further, the Rs 3.6 lakh crore Jal Jeevan mission has been allocated Rs 11,500 crore (+15 per cent) in the current year’s budget.
Further, to make India one of the preferred destinations for higher education, under its “Study in India” programme, Ind-SAT is proposed to be held in Asian and African countries.
Deceleration in the Manufacturing sector is one of the main reasons for the overall slowdown in the economy. While specifying some measures the Finance Minister has allocated Rs 27,300 crore for development and promotion of Industry and Commerce.
As per the minister, to attract additional investments in the electronics value chain, the government is working out a special package to enable large scale manufacturing of mobile phones, electronic equipment, semi-conductor and medical devices.
To give boost to technical textiles, a National Technical Textiles Mission is proposed with a four-year implementation period from 2020-21 to 2023-24 at an estimated outlay of Rs 1,480 crore.
In September 2019, the government had offered a concessional corporate tax rate of 15 percent to the newly incorporated domestic companies in the Manufacturing sector to start manufacturing by 31 March 2023.
A whopping Rs 1.70 lakh crore has been set aside in the Budget 2020-21 for development of the transport sector.
In the Roadways, the government intends to develop 2,500 km access control highways, 9,000 km of economic corridors, 2,000 km of coastal and land port roads and 2,000 km of strategic highways. The government also intends to complete the Delhi-Mumbai Expressway by 2023 and commence work on the proposed Chennai-Bengaluru Expressway.
In the Railways, the Budget aims electrification of 27,000 km of tracks. During 2020-21, the Rs 18,600 crore, 148 km Bengaluru suburban transport project would be taken up on metro model and the highly ambitious high-speed train service between Mumbai to Ahmedabad would be actively pursued. The government also proposes to set up solar power capacity alongside the railway line on railway land.
To help the flagging airways service, the government plans to develop 100 more airports by 2024 under the Udaan scheme.
Under the development of Inland Waterways, the government intends to take up the 890 km Dhubri-Sadiya connectivity project.
A budgetary allocation of Rs 22,000 crore has been fixed for the Power and Renewable Energy sector in 2020-21. In order to attract investment in the Power sector, the Budget proposes to extend the concessional corporate tax rate of 15 percent, earlier offered to new manufacturing companies, to new domestic power companies.
The Real Estate sector, one of the largest job creators, is in dire need of some hand holding from the government as most of the builders have a huge number of unsold stocks as of date. Their debt burden has ballooned during recent years.
In the 2019 budget, the government had announced an additional deduction of up to Rs 1,50,000 for interest paid on loans taken for purchase of an affordable house. The deduction was allowed on housing loans sanctioned on or before 31 March, 2020. To allow more persons to avail this benefit, the date of loan sanction for availing this additional deduction has been extended by one more year.
In the same line, the approval date of affordable housing project for availing tax holiday has been extended from 31 March 2020 to 31 March 2021.
The Budget proposes setting up five more smart cities under the PPP route in the upcoming economic corridors. These cities will be set up in collaboration with the respective state governments.
To encourage both foreign and domestic tourism, the government intends to develop five archaeological sites as iconic sites with on-site museums at Rakhigarhi in Haryana, Hastinapur in Uttar Pradesh, Shivsagar in Assam, Dholavira in Gujarat and Adichanallur in Tamil Nadu. Additionally, a tribal museum will be set up in Ranchi, Jharkhand. Further, a maritime museum would be set up at Lothal — the Harrapan-age maritime site near Ahmedabad, Gujarat.
In all, the budgetary allocation to the Ministry of Culture has been fixed at Rs 3,150 crore for 2020-21.
To expand the scope of BharatNet and provide digital connectivity to all public institutions at Gram Panchayat level such as Anganwadis, health and wellness centres, government schools, PDS outlets, post offices and police stations, the Budget has set aside Rs 6,000 crore for the year 2020-21.
NIP and its Financing
To reverse the falling investment trends, step up the annual investment into various social and economic infrastructure and create an enabling investment environment, the government on 31 December 2019 announced a mammoth investment plan under the “National Infrastructure Pipeline” scheme. Under this programme a total sum of Rs 102 lakh crore would be spent on 6,500 projects between 2019 and 2025 in sectors like Energy, Transport Infrastructure, Urban and Rural Infrastructure, Agriculture Infrastructure, Health, Education, etc. Of the total planned projex, 22 percent will be invested by the Private sector and the balance will be equally shared by the Central and state governments.
A provision of Rs 22,000 crore has already been made as equity support to Infrastructure Finance Companies such as IIFCL and a subsidiary of NIIF. This would enable them to create a financing pipeline of more than Rs 1,00,000 crore.
Tax concession for foreign investments
To incentivise investment of Sovereign Wealth Fund of foreign governments in the priority sectors, the government has granted 100 percent tax exemption to their interest, dividend and capital gains income in respect of investment made in infrastructure and other notified sectors before 31 March 2024. Such investment would have a minimum lock-in period of three years.
The government has extended the period of concessional withholding rate of 5 percent on interest payment to non-residents in respect of moneys borrowed and bonds issued up to 30 June 2023 and interest paid to Foreign Portfolio Investors (FPIs) and Qualified Foreign Investors (QFIs) in respect of bonds issued by Indian companies and government securities till 30 June 2023. The same concession has also been extended to municipal bonds.
In recent years, start-ups (Soonicorns and Unicorns) have emerged as engines of growth and employment creators in India. All eligible start-ups having a turnover up to Rs 25 crore are currently allowed deduction of 100 per cent of their profits for three consecutive assessment years out of seven years. The Budget proposes to increase the turnover limit to Rs 100 crore. Moreover, the period of eligibility for claiming the deduction has also been raised from the existing seven years to 10 years.
Taxation on ESOP has been shifted from the time of exercise to the time of sale of shares. Further, such employees have been extended options to defer the payment of such tax till five years or till they leave the company or when they sell their shares, whichever is earliest.
Medium, Small and Micro Enterprises (MSME)
MSMEs up to Rs five crore turnover are now not required to get their books audited by an accountant. However, this benefit can be availed by only those MSMEs which carry out less than five percent of their business transactions in cash.
Projects Today Verdict
Though the Budget did not carry any big bang reforms, the emphasis laid on putting more money into rural economy and lining up huge investment on infrastructure building in the next five years would certainly help Indian economy to rebound in coming months. Having said this, we once again emphasise the importance of timely execution of the 6,500 projects lined up under the National Investment Pipeline. For this to happen, the government on its part should ensure that no projects are held up for want of permission, availability of land or funds. Continuous monitoring of these 6,500 projects will assist the government in fulfilling its ambitious goal.